Hongkong Xinhe International Investment Company Limited v Bullseye Mining Limited
[2020] WASC 276
•15 JULY 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: HONGKONG XINHE INTERNATIONAL INVESTMENT COMPANY LIMITED -v- BULLSEYE MINING LIMITED [2020] WASC 276
CORAM: HILL J
HEARD: 14 JULY 2020
DELIVERED : 15 JULY 2020
FILE NO/S: COR 83 of 2020
BETWEEN: HONGKONG XINHE INTERNATIONAL INVESTMENT COMPANY LIMITED
Plaintiff
AND
BULLSEYE MINING LIMITED
First Defendant
PETER JOSEPH BURNS
Second Defendant
PETER GERARD BURNS
Third Defendant
DARIENA CATHERINE ANN MULLAN
Fourth Defendant
ASPEN CORPORATE PTY LTD
Fifth Defendant
Catchwords:
Corporations - Interlocutory application for production of documents - Application for production of share register - Whether application final or interlocutory - Use of information in share register - Whether proposed use relevant to the holding of an interest or exercise of a right attaching to an interest recorded in the register - Whether discretion should be exercised to order production - Order for production of share register
Legislation:
Corporations Act 2001 (Cth), s 168, s 169, s 173, s 177, s 177(1A), s 1324
Corporations Regulations 2001 (Cth), reg 2C.1.02
Rules of the Supreme Court 1971 (WA), O 59 r 9
Result:
Production of share register ordered
Representation:
Counsel:
| Plaintiff | : | ML Bennett |
| First Defendant | : | MC Goldblatt |
| Second Defendant | : | MC Goldblatt |
| Third Defendant | : | MC Goldblatt |
| Fourth Defendant | : | MC Goldblatt |
| Fifth Defendant | : | M Vallve |
Solicitors:
| Plaintiff | : | Bennett + Co |
| First Defendant | : | Murcia Pestell Hillard |
| Second Defendant | : | Murcia Pestell Hillard |
| Third Defendant | : | Murcia Pestell Hillard |
| Fourth Defendant | : | Murcia Pestell Hillard |
| Fifth Defendant | : | Vallve Legal |
Case(s) referred to in decision(s):
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27
Broken Hill Proprietary Company Ltd v Bell Resources Ltd (1984) 8 ACLR 609
IMF (Australia) Ltd v Sons of Gwalia Ltd [2004] FCA 1390; (2004) 51 ACSR 111
IMF (Australia) Ltd v Sons of Gwalia Ltd [2005] FCAFC 75; (2005) 53 ACSR 657
O'Brien & Ors v Sporting Shooters Association of Australia (Victoria) [1999] 3 VR 231
Premier Gold NL v Ocean Resources NL (1994) 14 ACSR 695
QIW Retailers Ltd v Davids Holding Pty Ltd (No 2) (1992) 37 FCR 57; (1992) 8 ACSR 333
Wildflower Electrical Refrigeration Service (WA) v Refrigid Pty Ltd [2014] WASC 382
Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [2009] WASC 324
HILL J:
(These reasons were delivered extemporaneously at the conclusion of the hearing. They have been edited from transcript to correct matters of grammar and so as to include complete references in the form of footnotes.)
On 3 July 2020, the plaintiff filed an originating process seeking orders pursuant to s 233, s 247A and s 1324 of the Corporations Act 2001 (Cth) (Act).
The plaintiff is a substantial shareholder of the first defendant and currently owns approximately 20.9% of the shares on issue. The defendants to the proceedings are Bullseye Mining Ltd, an unlisted public company, its directors, the second to fourth defendants, and Aspen Corporate Pty Ltd the fifth defendant, an accounting firm who holds and maintains the share register at the first defendant.
On 7 July 2020, the plaintiff filed an interlocutory process seeking orders that the second to fourth defendants, alternatively the fifth defendant, provide a copy of the share register of the first defendant in electronic form. Separately, the plaintiff sought orders pursuant to s 247A for inspection of certain books of the first defendant.
In support of its interlocutory application, the plaintiff relies on the affidavits of Luke Huang filed 6 July 2020, an affidavit of Sam Cheng filed 6 July 2020, an affidavit of Alexander James Tharby filed 13 July 2020, and an affidavit of Roger Geoffrey Richard Harris filed 14 July 2020.
At the hearing before me on 14 July 2020, the application for orders pursuant to s 247A was not pressed. The only orders that were sought by the plaintiff were orders requiring the production of the share register. In essence, the plaintiff contended that the defendants had not complied with their obligations under the Act to provide an electronic copy of the share register, and sought orders requiring production of a compliant register.
The application is opposed by the defendants. The first to fourth defendants rely on two affidavits, an affidavit of Peter Gerard Burns filed 14 July 2020, and an affidavit of Warren James Hoy filed 14 July 2020.
The application was opposed on four primary grounds. First, there was no urgency associated with the application, and it should not be entertained. Second, insofar as the application was made under s 1324(2) of the Act, the plaintiff had not adduced any evidence of how its interests were affected by the failure to provide the register. Third, the application by the plaintiff was not an interlocutory application, but was for final relief. Fourth, the purpose for which the information was sought did not fall within s 177(1A) of the Act and the court should not exercise its discretion to order production of the register.
The fifth defendant also opposed the application primarily on the basis that it was the first defendant's agent, and that if any relief was to be granted it should be limited to the other defendants.
Conferral under O 59 r 9
In correspondence which was before me, an issue was raised by the solicitors for the first to fourth defendants regarding the failure of the plaintiff to confer with the defendants prior to bringing the application. While this was not addressed in oral argument before me, I deal with this for completeness.
On 10 July 2020, the solicitors for the first to fourth defendants wrote to the solicitors for the plaintiff raising the issue that prior to the filing of the interlocutory process the plaintiff had not complied with the obligations under O 59 r 9 of the Rules of the Supreme Court 1971 (WA) (Rules). The plaintiff's solicitors responded later that day to indicate their preparedness to confer with the defendants.
Matters relating to corporations are governed by the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). Rule 1.3 of the Corporations Rules provides that the other rules of the court apply to the extent that they are relevant and are not inconsistent with the Corporations Rules. It is my view that once an originating process has been issued under the Corporations Rules it is determined, first, in accordance with the Corporations Rules and, second, unless the rules are inconsistent, in accordance with the Rules. For this reason, if an interlocutory process is filed to be heard in chambers, the parties are required to comply with the requirements of O 59 r 9 of the Rules.
Order 59 r 9 provides that no orders shall be made by the court on an application in chambers unless the application is filed with a memorandum of conferral. The operation of this rule can be waived in a case of urgency or for other good reason.
As was noted by Martin CJ in Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd:[1]
Whether or not there is good reason in any particular case will depend upon the particular facts and circumstances of the case viewed in light of the evident purpose which is served by the rule. That purpose is a very important purpose. It arises from the fact that experience prior to the introduction of the rule was to the effect that litigants in this court could find themselves exposed to unnecessary expense and delay as a consequence of avoidable interlocutory disputes.
The purpose and object of the rule is to avoid parties to proceedings in the court losing time and money as a consequence of interlocutory disputes that might be avoided or narrowed as a consequence of the conferral which is required by the rule. Another important purpose served by the rule is to avoid the dissipation of the limited resources of the court on interlocutory disputes which might be avoided or narrowed by reason of the conferral required by the rule. It is therefore a rule of considerable importance to the administration of justice and the circumstances in which the court will waive the operation of the rule will necessarily be confined by the public interest in the achievement of important objectives to which I have referred.
[1] Yici Pty Ltd v Sun Wah Marine Products (HK) Co Ltd [2009] WASC 324 [18] - [19].
Where conferral would be of no utility and would only lead to unnecessary costs being incurred, the court will not insist on compliance with O 59 r 9(1).[2]
[2] Wildflower Electrical Refrigeration Service (WA) v Refrigid Pty Ltd [2014] WASC 382 [14].
In this case, the plaintiff's solicitors offered to confer with the defendants prior to the hearing, which invitation was not taken up. Given the requirement of the Act, which I address in further detail below, that a copy of the register be provided within seven days of the date of the request, I am satisfied that an application for production of the share register is an application that is urgent and that accordingly there is good reason to waive compliance with O 59 r 9.
In addition, in circumstances where the application was opposed by the defendants at the hearing before me on 14 July 2020, I am satisfied that conferral would have been of no utility, and would only lead to unnecessary costs being incurred.
Statutory Regime
Chapter 2C of the Act governs the obligation of companies to keep and maintain a register of members. Specifically, a company is required to set up and maintain a register of members (s 168(1)(a)) which must contain, inter alia, each members' name and address and the date on which the entry of the members' name in the register was first made (s 169(1)), the date on which each allotment of shares takes place, the number of shares in each allotment, the shares held by each member (s 169(3)), and whether or not the shares are held beneficially (s 169(5A)). The register is also required to show the details of each person who ceased to be a member of the company within the last seven years and the date on which this occurred (s 169(7)), although this may be maintained in a separate register.
Section 173 of the Act sets out the rights of inspection of the register. A member of the company may inspect a register without charge (s 173(2)). Pursuant to s 173(3) a company 'must' give the person a copy of the register within seven days if the person makes an application to the company in accordance with s 173(3A) and pays any fee required by the company or scheme. If the register is maintained on a computer, the company must give the copy to the person in the prescribed form. Section 173(3A) requires the application for the register to state each purpose for which the person is accessing the copy of the register which must not be a 'prescribed purpose'.
Part 2C of the Corporations Regulations 2001 (Cth) contains the prescribed forms and purposes. Relevantly, for the purposes of this application, reg 2C.1.02 provides that:
[A] copy of a register must be provided as a delimited text file:
(a)produced by commercially available spreadsheet or database application; and
(b)copied onto a CD-ROM or a USB portable memory device.
Regulation 2C.1.03 defines what is a 'prescribed purpose'.
Section 174 of the Act sets out the obligations of a party who maintains a share register. Pursuant to s 174(1), the agent must make the register available for inspection under this chapter and provide the copies required by this chapter.
Section 177(1) of the Act provides that a person must not use information obtained about a person from a register to contact or send material to a person. Pursuant to s 177(1A)(a) this does not apply if the use or disclosure of the information is relevant to the holding of the interest recorded in the register or the exercise of the rights attaching to them.
The plaintiff sought relief on two alternative basis. First, under s 233 of the Act, on the basis that the refusal to provide the register was oppressive to their interests, and, second, under s 1324 of the Act.
In the hearing before me on 14 July 2020, the claim was primarily advanced in reliance on s 1324(2) of the Act. This section relevantly provides that:
Where a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that the person is required by this Act to do, the Court may, on the application of:
(a)ASIC; or
(b)any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing;
(c)grant an injunction, on such terms as the Court thinks appropriate, requiring the first-mentioned person to do that act or thing.
Whether the plaintiff can bring an application under s 1324(2) of the Act
Counsel for the first to fourth defendants contended that in order for relief to be granted under s 1324(2) of the Act, it was necessary for the plaintiff to adduce evidence that its interests had been affected by any failure of the defendants to provide it with a copy of the share register.
I do not accept that submission. As was noted by Cooper J in QIW Retailers Ltd v Davids Holding Pty Ltd (No 2),[3] s 1324(2) of the Act replicates the terms of s 574(1)(b) of the former Companies Code. In Broken Hill Proprietary Company Ltd v Bell Resources Ltd, Hampel J considered the meaning of 'interests' in s 574(1)(b) of the Companies Code:[4]
The Companies Code in my view is legislation which is clearly concerned in the broadest sense with the protection of the public in respect of commercial activities of corporations. The whole legislative scheme is designed to ensure that the greatest possible protection is afforded in many instances by the provision to the public of information relevant to those commercial activities.
Severe penalties are imposed by many sections of the Code for non-compliance with it, and section 574 in my view is intended to enable interested persons to obtain relief in the form of injunctive relief to prevent actual or proposed conduct in contravention of the code. It follows that interpreting s 574(1)(b) a broad interpretation consistent with the objectives of the Act [sic Code] should be adopted and not the more restricted interpretation of the kind adopted by Gillard J before the enactment of this much more far reaching and comprehensive Companies Code.
In my view, the interests referred to in this section are the interests of any person (which includes a corporation) which go beyond the mere interest of a member of the public. It is not necessary that personal rights of a proprietary nature or rights analogous thereto are or may be affected nor need it be shown that any special injury arising from a breach of the Act [sic Code] has occurred.
…
To hold otherwise would, in my view, be quite contrary to the scheme of this legislation and to the interest which the public has in ensuring that persons who have more than a mere general interest are able to invoke the powers of the court given by s 574. (citations omitted)
[3] QIW Retailers Ltd v Davids Holding Pty Ltd (No 2) (1992) 37 FCR 57; (1992) 8 ACSR 333, 335.
[4] Broken Hill Proprietary Company Ltd v Bell Resources Ltd (1984) 8 ACLR 609, 613 - 614.
Justice Cooper went on to state that the test to be applied under s 1324(2)(b) of the Act is substantially the same as the test of locus standi under the general law.[5]
[5] QIW Retailers Ltd v Davids Holding Pty Ltd (No 2), 336.
I respectfully agree with his Honour's comments. That is, this requirement in s 1324(2) of the Act does not require an applicant to adduce evidence that its interests have been affected by the refusal of the company to do an act or a breach of the Act; rather, the applicant must adduce evidence that it has standing to bring the application.
In my view, a shareholder who has requested a copy of a share register from a company and has not received this register in the form prescribed by the Act has standing to bring an application against the company to enforce compliance with the company's obligations under the Act.
Whether application is an interlocutory application or an application for final relief
The first to fourth defendants also objected to the application being determined on an interlocutory basis. They contend that although the application is brought on an interlocutory basis, it is, in substance, a claim for final relief. This is because if the court were to order an injunction in the terms sought by the plaintiff, it would, for all practical purposes, resolve this part of the claim.
I accept this submission. However, this does not mean that the application cannot be resolved at this stage of the proceedings. What it does mean is that the evidence in support of the application must be direct admissible evidence and not based on information and belief which otherwise would be sufficient to support an application for interlocutory relief.[6]
[6] Premier Gold NL v Ocean Resources NL (1994) 14 ACSR 695.
Evidence on the application
I turn then to consider the admissible evidence in relation to the application. Mr Huang in his affidavit of 3 July 2020 annexes the relevant correspondence that passed between the solicitors for the parties in respect of the share register. In my view, this evidence is not admissible on the final application as Mr Huang was not the author or recipient of this correspondence.
However, the affidavit of Mr Burns that was filed in opposition to the application admits that on 1 July 2020 a copy of the share register was provided to Allens and that this copy is at annexure 'LH‑3' of Mr Huang's affidavit.[7] That is, it was not in dispute, on the evidence before me, that a copy of the first defendant's share register was provided to the plaintiff on 1 July 2020 and that this copy was the document attached at annexure 'LH‑3' of Mr Huang's affidavit.
[7] Affidavit of Peter Gerard Burns filed 14 July 2020 [61].
For this reason, I consider this evidence is admissible on the final application and that I can have regard to it.
Disposition
Having reviewed the copy of the register provided to the plaintiff, the document contains five columns. The member shareholder name, currency, shares, options, and per cent. I find that this copy of the register does not comply with the provisions of the Act in a number of respects: it does not contain information as to the date on which entry of the members name was first made, the date on which each allotment of shares has taken place, and whether or not the shares are held beneficially.
While s 173 of the Act is in mandatory terms, the relief sought under s 1324(2) of the Act is not mandatory. The court has a discretion as to whether to grant the relief sought by the plaintiff. However in considering whether or not to exercise the discretion, it is important to have regard to the fact that the obligations in s 173 of the Act are mandatory.
It is also important to note that this is a statutory jurisdiction and is not in the court's traditional equity jurisdiction. Parliament has made it clear that the court, in exercising its statutory jurisdiction, is not to be confined by the considerations which would be applicable if it was exercising its traditional equity jurisdiction.
In this case, as already noted, I am satisfied that the first defendant was required to provide a copy of its share register containing the information prescribed by the Act in a particular form to the plaintiff within seven days of the date of its request, and that it has not done so. While I accept that the plaintiff has not filed an undertaking as to damages, I do not consider that one is required. The injunction sought by the plaintiff is to require compliance with the first defendant's obligations under the Act. In argument before me, the defendants did not point to any evidence or make any submissions that it had complied with its obligations.
The first to fourth defendants opposed the court exercising its discretion to grant any relief to the plaintiff on the basis of s 177 of the Act. They adduced in evidence a letter sent by the plaintiff to a shareholder of the first defendant after receipt of the register raising concerns about the management of the first defendant and inviting the recipient of the letter to contact the plaintiff.[8] Counsel contended that the letter was not relevant to the holding of an interest recorded in the register or the exercise of the rights attaching to them, as required under the exception in s 177(1A) of the Act. For this reason, counsel for the first to fourth defendants contended that I should decline to exercise my discretion to order production of the register.
[8] Affidavit of Warren James Hoy filed 14 July 2020, 'WJH-01'.
I accept that in considering whether to exercise my discretion under s 1324 of the Act, it is relevant to take account of what purpose the register will be used for, and whether, if it is to be used to communicate with shareholders, these communications fall within the exceptions of s 177(1A) of the Act. In this case, it is clear that the correspondence has not been approved by the company, and accordingly the question is whether the letter falls within the exception provided in s 177(1A)(a).
This is a matter of statutory construction which requires the court to consider what is meant by the words used as discerned from its text, context, and purpose.[9]
[9] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 [4].
The proper construction of this section has been previously considered by a number of first instance judges. In the context of an application by a litigation funder or a company seeking participation in a class action against the company, it has been held that this does not fall within the exception as it essentially involves the marketing of services in connection with proposed litigation which does not bear upon and is not connected with the holding of shares or the exercise of rights attached to the shares.
In IMF (Australia) Ltd v Sons of Gwalia Ltd, French J stated:[10]
A controlling word in the exemption provided by s 177(1A)(a) is the word 'relevant'. Like the words 'related to' it may be widely or narrowly construed. On one view, it covers any use of information which is connected in any way to a person's status as a shareholder of the company. On another view, it may be more narrowly construed as requiring some narrower legal connection to the actual ownership of the shares and the enjoyment of the rights which that ownership confers. On that narrower basis, the use of information in connection with the past acquisition or disposal of interests would not ordinarily be relevant to the holding of the interests.
In my opinion, the range of 'relevant' uses of register information is to be construed in the narrower sense more closely connected to the actual holding of shares and the exercise of rights attaching to them. That is not to exclude the possibility that information relating to past shareholders may be used to communicate with them in a case in which they have grounds to bring or join in an action against the company for relief against oppression or to bring or to intervene in a statutory derivative action. It is in my opinion, however, contrary of the purpose of the prohibition, which protects shareholder privacy, to construe the exemption as permitting unsolicited approaches to shareholders using information on the register with a view to selling shareholders services simply on the basis that they are connected with their status, past or present, as shareholders in the company. (citations omitted)
[10] IMF (Australia) Ltd v Sons of Gwalia Ltd [2004] FCA 1390; (2004) 51 ACSR 111 [56] - [57].
On appeal in IMF (Australia) Ltd v Sons of Gwalia Ltd, Moore J stated 'it is clear that the limitation was not intended to preclude use of information to contact or send material to the person if that use had a direct bearing on the interest held.'[11]
[11] IMF (Australia) Ltd v Sons of Gwalia Ltd [2005] FCAFC 75; (2005) 53 ACSR 657 [9].
The Explanatory Memorandum that accompanied the legislative predecessor of this section contained the following commentary about this provision:[12]
However, the prohibition does not operate if the use or disclosure of the information is relevant to the holding of the securities concerned. It does not interfere with the use of the information for purposes such as contacting shareholders in relation to takeovers or in order to influence company management about the operation of the company.
[12] Explanatory Memorandum, First Corporate Law Simplification Bill 1994 (Cth) [7.15], 24.
The Explanatory Memorandum made it clear that the purpose of the provision was to prevent the compilation of commercial mailing lists unless their use was relevant to a shareholding.
It was not in dispute in the hearing before me that the purpose of the prohibition in s 177(1) of the Act is to protect shareholder privacy unless the communication is connected to the holding of shares and the exercise of rights attached to them. Counsel for the defendants accepted that members have an interest in being notified of and voting at an election for office bearers. They accepted that this is a measure designed to facilitate the internal governance of the company by encouraging members to vote for certain individuals seeking election to office.[13]
[13] O'Brien & Ors v Sporting Shooters Association of Australia (Victoria) [1999] 3 VR 231.
In my view, the right to communicate with shareholders regarding internal corporate governance of the company is not limited to communications prior to an annual general meeting or connected to an election of directors. In that case, the communication is concerned with the exercise of rights attaching to the shares. However, s 177(1A) is broader than allowing communications concerned with the exercise of rights. It also allows communications connected with the holding of shares.
As was noted by Emmett J in IMF (Australia) Ltd v Sons of Gwalia Ltd:[14]
[S]ection 177(1) may not inhibit use of information in order to communicate with members concerning their potential rights as shareholders to bring or join in an action against a company for relief against oppression or to bring or intervene in statutory derivative action. Such a use could be characterised as being for the purpose of communicating with a shareholder about a subject that is connected with the fact that the person holds the shares in respect of which the person is registered. It might also be characterised as being for the purpose of communicating about a subject that is connected with the exercise of rights attaching to such shares. (original emphasis)
[14] IMF (Australia) Ltd v Sons of Gwalia Ltd [63].
I consider that communicating with shareholders in respect of the performance of the company and its directors, and an invitation to communicate with the plaintiff to discuss any concerns, is connected to the holding of the shares as well as, potentially, with the exercise of rights attached to those shares.
For these reasons I consider that the proposed use of the information by the plaintiff is for a legitimate purpose and falls within the exception in s 177(1A) of the Act. Accordingly, I consider that it is appropriate to exercise my discretion to order the production of the share register to the plaintiff under s 1324(2) of the Act.
Finally, during submissions, counsel for the first to fourth defendants contended that the application should not be entertained on the basis that it was a waste of the court's and the parties' resources to argue about the production of a share register. While I have entertained the application, I agree that the court's and the parties' time and resources should not have been spent arguing this matter. The Act is quite clear in the obligations that it imposes on companies and their members. The parties should comply with their obligations. Similarly, O 59 r 9 of the Rules make plain that parties should confer with the other parties prior to the bringing of interlocutory applications; that should also be complied with.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MG
Research Orderly to the Honourable Justice Hill24 JULY 2020
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